CA, MD, VA Force Lenders' Hand On Divorce-Triggered Mortgage Assumptions

A coast-to-coast trend is taking shape: three states have now stripped conventional mortgage lenders of discretion to deny assumptions when divorcing co-borrowers want to keep the family home at the existing rate and remaining term.

Maryland led the way. HB 1018, effective October 1, 2025, requires certain mortgage loans to include a provision permitting a borrower, following a divorce decree awarding them the property, to assume the loan and purchase the co-borrower's interest in the property, provided the mortgage holder determines the borrower qualifies for the assumption. The assumption requirement applies to any "conventional home mortgage loan" that is not already required by Maryland or federal law or regulation to be assumable in connection with divorce. The statute also applies retroactively to conventional home mortgages entered into prior to the effective date.

Virginia followed. Under HB 304, effective July 1, 2026, conventional home mortgage loans must include the same mandatory assumption provision where the assumption is in connection with the granting of a decree of annulment or divorce and the assuming borrower qualifies for the loan. The bill also requires a mortgage lender to disclose the assumption provision to a loan applicant within 3 days of receiving a completed loan application.

California goes the farthest. Its law, enacted by AB 3100 and applicable to conventional loans originated on or after January 1, 2027 and secured by owner-occupied one-to-four-unit residential property with multiple borrowers, locks in the existing rate and remaining term on assumption by a co-borrower in connection with a decree of dissolution of marriage, legal separation, or incidental property settlement, if the assuming borrower qualifies as determined by the lender.

The common thread: "conventional" means not federally insured or guaranteed; consent becomes mandatory rather than permissive on qualification; the lender retains underwriting discretion but loses its veto.

Three implementation issues cut across all three statutes. First, none expressly exempts national banks or federal savings associations. Expect preemption arguments under 12 C.F.R. § 34.4 and the Dodd-Frank/Barnett Bank "prevents or significantly interferes" standard at 12 U.S.C. § 25(b). Garn-St. Germain (12 U.S.C. § 1701j-3(d)) already restricts due-on-sale enforcement in interspousal transfers, but these statutes go further by locking in rate and term. However, these laws require co-borrowers; Garn-St. Germain does not, so the spouse may be a successor in interest under Garn-St. Germain without being a co-borrower. Second, an assumption under 12 C.F.R. § 1026.20(b) is a new transaction for TILA purposes and independently triggers the ability to repay rule at 12 C.F.R. § 1026.43(c). Third, the permissive assumption language in the Fannie/Freddie uniform instruments will not satisfy any of the three statutes. State-specific riders may be forthcoming.

Putting It Into Practice: Multistate mortgage lenders should treat this as the start of a trend, not three isolated bills. Build a state-by-state assumption matrix tracking trigger events, qualification standards, pre- and post-application disclosure timing, and retroactivity, and align originations and servicing workflows accordingly. National banks and federal savings associations should make a documented preemption call before bifurcating portfolios, and all lenders should monitor for Fannie/Freddie conforming-document updates and copycat legislation in other states.